Why do people avoid life insurance?

Smart practice

A health condition isn’t always a barrier to cover

While insuring your car or home is something you always do, some people feel that life cover is optional.

Those who have lost a loved one will tell you, however, that insuring your life is as critical as insurance for your car. In many cases, more so.

What stops so many from getting adequate life insurance? Sometimes the barriers aren't as restrictive as people think.

Existing health conditions

Those who have an existing health condition, like diabetes mellitus, heart disease or obesity, sometimes believe it will significantly increase their life insurance premiums, making this cover prohibitively expensive. They may believe they could not get cover, even if they wanted to.

Let's look at this in detail and consider the cost versus the value, taking obesity as an example.

The World Health Organisation (WHO) defines being overweight or obese as having an abnormal or excessive fat accumulation that may impair health.1 WHO uses the body mass index (BMI) as a weight measure. If your BMI is more than 25, WHO defines you as overweight. If your BMI is more than 30, WHO defines you as obese.

Australia uses these same measurements.2 According to a report by the Australian Institute of Health and Welfare, 'Australia's Health 2014', 63 per cent of Australian adults were overweight or obese in 2011-2013.3

Obese people have a number of increased health risks, including heart disease, stroke, diabetes mellitus, osteoarthritis and some cancers. Due to these increased risks – and the higher likelihood of making an insurance claim – life insurance premiums can increase for obese clients by anything from an additional 50 per cent. In some cases, a person may not be able to secure cover at all.

The solution

What's the solution for this group of people?

First, they should remember that most life insurance companies only start increasing premiums for people with a BMI of 32 and above. The second thing to remember is that, if cover can be obtained even at a higher cost, some cover is generally better than no cover at all. When a person experiences a traumatic event, whether weight-related or not, they have peace of mind knowing their lifestyle can be maintained and their loved ones will be looked after.

Third, products have been introduced in Australia that blend trauma cover and total and permanent disability cover. In the consideration of claims, these products focus on health events and offer a more comprehensive cover for more medical conditions. They are, therefore, more closely aligned with a person's specific requirements.

The products also offer a multiple claims facility, so a person can claim more than once. One relatively minor issue does not force the person to claim their entire policy amount.

In addition, the products often allow the person's medical condition to be reviewed regularly. This means that, with a balanced lifestyle and a BMI decrease, someone suffering from obesity may be able to reduce their premiums, even after their policy term has begun.

Life insurance can seem like an added extra you don't need. Whatever your personal circumstances, however, you should consider your life cover any time you review your car and home insurance.

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This information is provided for the use of licensed and accredited brokers and financial advisers only. In no circumstances is it to be used by a potential client for the purposes of making a decision about a financial product or class of products.

1 WHO Fact Sheet No 311

2 National Health and Medical Research Council of Australia

3 Australian Institute of Health and Welfare, “Australia’s Health 2014”

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